As part of Life Insurance Canada's Blog for Financial Literacy day, I wanted to share my best financial tip, the one that made the biggest difference in my personal finances. If you want to get your financial house in order, the best thing you can do is pay off debt. Paying off debt can lead to financial freedom, and free you up to build wealth. I realized this once we paid off all our consumer debt, it really made a difference in out monthly budgeting now that there was some room to spend, save or invest.
Stop Making Others People Rich
First of all, when you have debt, you are paying money to someone else. When you borrow, you pay interest charges, which represent a fee you pay just for the privilege of borrowing the money. You don't receive goods or services in return for this interest payment. You just pay the money straight to someone else.
That is money that you could be using to build up your own wealth. If you are paying $50 a month in interest charges on a credit card, that is $50 a month straight into someone else's pocket. You could be using that money to invest, boost your RRSP contributions, or shore up your finances with an emergency fund.
Instead of enriching others, pay off your debt and then use your financial resources to better your own situation. You'll have more money, and be more secure for the future.
More Freedom in Your Monthly Spending
Realize, too, that debt represents a drain on your resources. Your debt is an obligation that needs to be paid. When you have debt, you can't spend money on what you want because you have to meet this obligation. Having debt restricts your monthly spending options.
Instead of spending money on debt, you can free up your monthly spending so that you end up with more to spend on what you want. You have more choices with your money when you aren't weighed down by obligations. Pay off your debt, and you'll be surprised at how much more money you have each month to spend on the things you want.
Less Financial Stress and Anxiety
We also have to remember that money is tied to emotion. Even if you don't realize it, having debt adds stress to your life. When you have debt, you are more likely to worry about money. You have all these bills to pay, and that can make you anxious.
You feel out of control when you have a great deal of debt. Instead of letting your financial fears rule you, take charge. Create a plan to pay off your debt. You'll feel better for making the plan, since you can now feel in charge.
Plus, once the debt is paid off, you will have less anxiety. You will have more money in your budget for groceries and gas and even entertainment. You won't worry as much about money, and that can help you in your relationships as well as help your financial situation.
Pay off debt, and you can really get on the right financial track. There are a lot of ways that debt can strain your finances, as well as add emotional stress to your life. Pay it off, and you will have fewer worries, and your money will go toward things that help you, instead of going toward things that don't matter to you.